Implications of Reform for Hospitals: Seismic or Subtle?

Hospitals are keeping a wary eye on Washington, and on several key payor trends with major implications for imaging service lines, for good reason.

In a December 2, 2009, presentation to representatives of member hospitals in Chicago, Illinois, Shay Pratt, managing director of the Advisory Board, explained that radiology’s contribution to hospital profit exceeds, by far, the contributions of the four other leading outpatient services. In 2007, radiology accounted for $24.1 billion in hospital contribution profit, making almost three times the contribution of cardiology, the nearest competitor, at $8.2 billion.

“When you have a discussion around reform,” Pratt explains, “the reason there are so many worries and concerns is that it disrupts the status quo.” The status quo has been relatively favorable for the past 10 years or so. Not only has imaging subsidized many less-profitable services, but it has been a high-growth area, despite the DRA and the effects of preauthorization. Hospitals’ concerns, however, are not unfounded.

“Congress has pointed to imaging costs as a symptom of all that is wrong with health care right now, and that is a real cause for concern to all imaging providers,” Pratt says. “At the same time, there are broader proposals in play: The reform bills contain a lot of provisions that would call for greater experimentation around inpatient bundling, accountable care, and episodic bundling.”

Even without reform legislation, the Advisory Board expects CMS to continue experimenting with new payment methodologies, though greater adoption of mechanisms like accountable care is a few years out. While it will be essential to prepare for these risk-sharing models, for now, both hospital and nonhospital imaging providers are tracking payment changes that directly target radiology. The key questions are how seismic these changes will be and what their impact on outpatient share will be.

Share Erosion

With an increase in the assumed equipment-utilization rate for high-tech imaging and reductions in practice-expense allowances, Medicare Part B global imaging payments will decrease 16% by 2013, putting further reimbursement pressure on IDTFs. For the near term, Pratt sees a flattening of the share erosion that hospitals have been experiencing (see Figure). Hospitals have been frustrated for years by the loss of MRI (and more recently, CT) to freestanding outpatient competitors, but Pratt predicts that the trend line will plateau and, in the case of PET/CT, even reverse.

Figure. The erosion in hospitals’ share of advanced outpatient imaging (by volume) is expected to decelerate. Reprinted with permission: The Advisory Board Co.

He cites several wild cards that could influence the site of service, one of which is price sensitivity. The economic downturn has the potential to change behavior/spending patterns, but how effective consumers will be at price shopping is unknown. “Just how sensitive is the market?” Pratt wonders. “How much at risk are hospitals?”

The other unknown is whether radiology benefit management (RBM) companies will move successfully from preauthorization to redirection. American Imaging Management’s OptiNet® tool allows physicians to search for an imaging provider based on location, price, and a quality score. Both National Imaging Associates and CareCore offer procedure scheduling when a physician calls for preauthorization.

“While there is limited evidence of price sensitivity with outpatient imaging, many hospitals enjoy favorable rates from commercial payors,” Pratt says. “If CMS is essentially stacking the deck against freestanding centers, will there be enough imaging centers left for RBMs to redirect the patients? When you get to that moment, there could be some difficult decisions for hospitals and payors in contracting.”

Utilization and Quality

Another key issue that could influence volumes in the near term is the emerging mandate to manage utilization directly, beginning with four imaging-efficiency measures that CMS will study in 2010. “Payors would like to increase the association with utilization and quality,” Pratt says. Radiology departments are not required to report, as CMS will pull utilization data from claims for these four cost-driven measures: lumbar-spine MRI for lower-back pain, mammography follow-up, and contrast use in both abdominal and thoracic CT.

Shay Pratt

“Which patients should get contrast? This is an issue for CMS, as a study pays more